Compliance with these regulations are required for financial services around the world. Malicious actors often attempt to launder money – hide their involvement with illegally-gained money through various methods and channels in order to avoid detection and prosecution.
There are various ways in which money can be laundered: through financial services such as banks and exchanges, gambling enterprises such as a casinos, purchasing goods such as art which are then sold off, or by various other means; all of these methods involve the criminal spending ‘dirty’ money and receiving ‘clean’ money that can’t be traced back to the crime.
The measures to counteract these different money laundering methods, and others, all fall under the anti-money laundering regulations which are designed to combat the different styles criminals attempt to employ.\ Without AML measures, criminals would be free to use money made from illicit activities and send it around the world at will without being caught. Besides the obvious advantage this would give to criminals, and the social and economic impact on legitimate people and businesses this would have where it was taking place, there is also the linked concern that money gained through criminal activity can be a significant funding source for terrorism.
This is not a problem that has sprung up in the last few years; money laundering has been an issue almost as long as money has been around, though the term is thought to date back to the early 1900s where Italian monsters would use laundromat businesses to disguise their illegally-gained money.\ A report in 2005 highlighted the issue when it estimated that money laundering involved well over £100bn in UK and US alone, with the increasing popularity of international payment and remittance channels and an increase of more than 25% in Global GDP since then.
There is likely to be a corresponding increase in money laundering. The UNODC puts the estimated money laundering figure somewhere between 2-5% of Global GDP.\ Despite the vital importance of AML regulations, complying with them can often be a time consuming and costly process. Various reports highlight the cost of compliance. Some companies perform ALM checks in-house, but have to spend valuable man-hours conducting the checks and take the liability of it onto themselves.
Others may choose to outsource the AML checks to a third party, but that can be much more expensive.